Kamal Ghorui
MUMBAI: RBI governor Sanjay Malhotra has indicated that capital account liberalisation cannot come at the cost of macroeconomic sovereignty. He said that while some regard this as conservatism, he sees it as prudence.Highlighting some of the prudent measures taken by RBI in the past, Malhotra said that there were controls on the capital account for residents, limits on short-term foreign debt, and RBI intervened in forex markets when needed. He added that in the boom years preceding the global financial crisis, RBI took the countercyclical measure of building up an investment fluctuation reserve.“The lesson embedded is that for a country at India’s stage of development, the sequencing of capital account liberalisation is not a technicality-it is a first-order question of macroeconomic sovereignty,” said Malhotra, speaking at Princeton University on April 18. He added that while none of the measures were popular, when the global financial system came under stress, Indian banks emerged from the crisis with relatively stronger balance sheets.Speaking on the present crisis impacting India via West Asia, Malhotra said that RBI’s strategy is to “look through” first-round supply shocks (e.g., oil price spikes causing forex volatility) to prevent second-round inflation from becoming entrenched, focusing on expectations rather than demand curbs. “In such circumstances, our broad approach has been to be even more data-dependent and to continuously reassess the balance of risks,” said Malhotra. Malhotra was assertive regarding digital infrastructure. He highlighted that India currently accounts for nearly 50% of the world’s real-time digital payment volume, and that UPI processed 22 billion transactions in March 2026 alone.
